How To Start a Small Business in 7 Steps

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In the current marketplace, there is no shortage of types of businesses you can start on your own. When the goal is to turn a profit, how you plan on beginning your small business can go a long way to extending the thin margins of your financial plan. 

How To Start a Small Business

Looking at starting a small business as a whole can seem more daunting than if you break the process into smaller, more achievable steps. Here are seven steps to take when starting your small business:

1. Vet your business idea with the SBA.
2. Identify your target market.
3. Make a business plan.
4. Finance your business.
5. Select your business legal structure.
6. Apply for business licenses and permits.
7. Choose your accounting software.

1. Vet Your Business Idea With the SBA

Learning how to start a small business from home can be overwhelming, especially when there is ample information to be researched, so leveraging resources is a strategic way to make progress more quickly. The Small Business Administration was created to aid small-business owners and serves as a resource for aspiring entrepreneurs.

Some of the resources available through the SBA include the following:

• Training in small-business operations
• Writing business plans
• Learning how to obtain small business loans and grants 
• Mentoring from experienced business owners 

Vetting your idea with professionals who have been through it is never a bad idea. You can get guidance through different phases of launching and developing your business. Many of the resources provided by the SBA are free, and it has an extensive library of information for learning.

2. Identify Your Target Market

If you provide a product or service, it’s important to identify your target market so you can understand your customers’ wants and needs. So, whether you start a home-based business that refurbishes antiques or an online business that sells eco-friendly home goods, knowing your demographic of consumers will determine how you market your product.

Study your competitors and various online forums to spot underserved needs your business can meet. Also, consider what your online presence will look like and how you’ll utilize social media platforms to reach your core demographic. Some of the most popular social media platforms you can use to reach your customers include:

• Instagram
• Twitter
• Facebook
• Snapchat

3. Make a Business Plan

A business plan, or executive summary, is a blueprint of where you want your small business to go. It should include information such as, but not limited to, the following:

• Company description
• Market analysis
• Organization and management
• Financial forecasts
• Marketing strategy, including advertising and social media

Be as thorough as possible so you have a good idea of how much capital and staffing you need to launch and sustain your business. Your business plan likely will be required when you apply for a small business loan or other financing options.

Choose Your Business Name

Your business name and brand will affect not only how your customer base will perceive you but also how you will be able to market your business. Things to consider when naming your business include:

• Website domain availability
• Social media handle availability
• Uniqueness in your state
• Email marketing

4. Finance Your Business

Starting a business requires an investment of funds. If you do not have personal funds, or seed money, to start your business, then there are other financing options you can consider. You need to get your finances in order before you apply for a small business loan because most lenders require good credit.

What Is an Angel Investor?

Angel investors are financial backers who invest their own funds into your business. Equity crowdfunding is another financing alternative in which a group of people invests in your startup in exchange for equity in your business.

Review your business plan, what you know about yourself and the information you gather about your investors and lenders before you make a decision. Your financing decision needs to reflect what is beneficial for your business but also what works for you.

5. Select Your Business Legal Structure

Your business structure can impact your company’s agility, financing or tax requirements and other factors. As you start your small business from home, you will find the simplest legal structure is a sole proprietorship in which you are responsible for all assets and liabilities.

Other structures you might consider are a partnership, a limited liability company or a corporation. Each of these has its own liability and tax implications, so consult an accountant or attorney to help you decide which business structure is best for you. 

If you are starting a family business or business partnership, make sure all parties are clear and in agreement on the business goals and finances before proceeding with loan applications and launching the company. Here are some examples of business structures:

• Limited Liability Company (LLC): LLCs are one of the most popular small business structures. They offer limited liability while letting you avoid the complexity of actual incorporation.  
• Sole proprietorship: With this, you are the sole owner which is simple in design but can get more complicated if you grow as there is no limited liability.
• Partnership: When you start your business with a partner, make sure to have clear breakdowns of responsibilities and revenue distribution. This business structure also has no limited liability. 
• Corporation: Depending on your goals for company growth or output, setting up as a corporation may work for you as it does have limited liability. However, this business structure is more complicated to set up and maintain. 

6. Apply For Business Licenses and Permits

Before you open for business, make sure that you’ve obtained all the necessary licenses and permits. Your business could be subject to different federal and state requirements, including laws that apply to online transactions only. As you research these rules and regulations, remember to add the costs of staying compliant to your long-term business plan.

EIN and Tax ID

When you get your business registered, you can apply for an employer identification number, or EIN, from the IRS. This number makes filing your federal taxes, hiring employees and in some cases, opening a business bank account possible. If you file as soon as you get registered, it will make paying your business taxes much easier. 

7. Choose Your Accounting Software 

Opening a business bank account comes with a slew of considerations of how you will run the day-to-day operations, transactions, payroll and finances of your business. This step should be taken before you hire any employees so you can have a system in place before issues of payment and insurance arise. 

Final Take: Starting Your Small Business

When it comes time to launch your business, you should have all the steps in place to expand your customer base as your business grows. The more you prepare before opening, the smoother the opening will go. 

Allen Young contributed to the reporting for this article.

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